Higher prices greet new year

By Lee Mielke

For the Capital Press

Published:January 3, 2014 12:11PM

Lee Mielke

Lee Mielke offers his weekly round-up of dairy news.

The December Federal order benchmark milk price is $18.95 per hundredweight (cwt.), up 12 cents from November, 29 cents above December 2012, 92 cents above California’s comparable 4b price, and equates to about $1.63 per gallon.

The 2013 Class III average is $17.99, up from $17.44 in 2012, and compares to $18.37 in 2011 and $14.41 in 2010.

The Class IV price is a record high $21.54, up $1.02 from November, $3.71 above a year ago, and the highest since September 2007. Its 2013 average is $19.05, up from $16.01 a year ago, $19.04 in 2011, and $15.09 in 2010.

The January 2014 Class III futures were trading late morning Jan. 3 at $20.08; February, $19.67; March, $19.09; April, $18.53; May, $18.22; and June at $18.01.

The AMS-surveyed U.S. average cheese price used in calculating this month’s FO (federal order) prices was $1.8761 per pound, up 1.5 cents from November. Butter averaged $1.6308, up 11 cents, nonfat dry milk $1.9537, up 6.5 cents, and dry whey averaged 57.06 cents, down 1.3 cents.

The California December 4b cheese milk price is $18.03 per cwt., up 73 cents from November and $1.73 above December 2012. This is the year’s second lowest price difference between it and the FO Class III price. The lowest was 67 cents in April. The highest was $2.30 in January.

The 2013 4b average is $16.42, up from $15.54 in 2012 and $16.37 in 2011. The December 4a butter-powder price is $21.16, up 53 cents from November and $3.69 above a year ago. Its 2013 average is $18.85, up from $15.63 a year ago and $18.82 in 2011.

Cheese production was expected to increase Christmas week as surplus holiday milk became available, according to USDA’s Dairy Market News (DMN). Retail sales continued to be good with specials for football bowl and playoff viewers.

Cash cheese prices diverged in the shortened New Year’s holiday week but the barrels rallied some on Friday. The blocks closed at $2.0425 per pound, up 4 1/4-cents on the week, 28 1/4-cents above a year ago, and the highest level since November 6, 2012. The barrels plunged 12 cents Monday and Tuesday but regained 7 cents Jan. 3 to close at $1.92, still 5 cents below the previous week, 20-cents above a year ago, and 12 1/4-cents below the blocks. Only two cars of barrel traded hands on the week. The AMS-surveyed U.S. average block price hit $1.9133, up 2.4 cents, while the barrels averaged $1.8990, up 6.3 cents.

Cash butter, after dipping to $1.5225 on Monday, rallied New Year’s Eve, Thursday, and Friday, and closed at $1.57, up 2 cents on the week and 7-cents above a year ago. Eleven cars traded hands on the week. AMS butter averaged $1.5804, down 6.5 cents.

The butter market was reported “firm behind good sales and lighter supplies throughout the regions,” according to DMN. Export interest was good with more opportunities available as 2013 came to a close but inventories are being replenished in most butter plants across the regions.

Grade A powder closed at $2.0675, down 4 1/4-cents on the week, while Extra Grade held at $2.09, where it’s been since December 17. AMS powder averaged $1.9785, up 1.6 cents, and dry whey averaged 57.16 cents, down 0.4 cent.

DairyBusiness Update (DBU) reports that retail dairy product prices are expected to rise 2.5-3.5 percent in 2014, on par with the rise for all foods eaten at home, according to the USDA Economic Research Service Food Price Outlook report.

The index measuring retail price movement estimated dairy product prices rose 0.5 percent in 2013, less than the “all food at home” increase of 0.75-1.25 percent for the year. The dairy product price index rose 2.1 percent in 2012 (2.5 percent for all foods eaten at home) and 6.8 percent in 2011 (4.8 percent for all foods eaten at home).

Declining fluid milk sales remain a challenge to the dairy industry. USDA data shows October sales at 4.5 billion pounds is estimated to have been sold in the U.S., down 3.5 percent from October 2012. Estimated sales of total conventional fluid milk products decreased 3.6 percent from October 2012 and estimated sales of total organic fluid milk products decreased 0.1 percent from a year ago.

3 million cows culled

Meanwhile, dairy cows around the country are taking early retirement. With statistics yet to be calculated for the final two weeks of the year, 2013 U.S. dairy cull cow slaughter topped 3 million head for a second consecutive year. DBU says this is just the fourth time cull dairy cow slaughter reached that mark since USDA began differentiating dairy cows from total cows in 1986.

USDA estimated 62,300 dairy cows were slaughtered under federal inspection during the week ending Dec. 14, pushing the 2013 year-to-date total to 3.003 million head, about 19,800 more than the corresponding period a year ago. Before 2012, dairy cow slaughter topped 3 million only twice, according to DBU, in 1986, at 3.595 million (whole herd buy-out program); and 1996, at 3.04 million.

Dairy farm bottomlines are looking better. Slightly higher monthly average milk prices combined with lower corn and alfalfa hay prices to push the preliminary December 2013 milk-feed price ratio higher. At 2.30, the index is up from 2.27 in November 2013 and 1.65 in December 2012. It’s the third straight month above 2.0, and the highest since October 2010. With the preliminary December estimate, the 2013 average milk-feed price ratio is 1.74, up from 1.53 a year ago.

The index is based on the current milk price in relationship to feed prices for a ration of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. The U.S. average all-milk price was $21.80 per cwt., compared to $21.60 in November 2013 and $20.80 in December 2012. December corn, at $4.31 per bushel, was down 4 cents from November and $2.52 less than December 2012. It’s the lowest U.S. average corn price since September 2010, according to DBU.

December 2013 soybeans averaged $13.00 per bushel, up 30 cents from November, but down $1.30 from December 2012. Alfalfa hay averaged $187 per ton in December, down $1 from November and $30 less than December 2012. DBU said it’s the lowest U.S. average hay price since June 2011.

Cooperatives Working Together (CWT) accepted 8 requests for export assistance this week to sell 5.94 million pounds of butter and 914,919 pounds of cheddar cheese to customers in Europe, the Middle East and North Africa. The product will be delivered through June and raised CWT’s 2013 cheese exports to 130.324 million pounds plus 97.580 million pounds of butter, 44,092 pounds of anhydrous milk fat and 218,258 pounds of whole milk powder to 40 countries.

Chinese milk imports grow

Speaking of international markets, the Daily Dairy Report’s Sarina Sharp wrote in the Dec. 27 Milk Producers Council newsletter that Chinese imports are growing further due to a decline in domestic milk output. She states that data on the Chinese dairy industry is “murky at best,” but said there are widespread reports of declining cow numbers and milk production deficits.

Sharp also reported that a Chinese official estimates that, due to high beef prices and poor farm-level economics, the Chinese dairy herd has lost 2 million cows in the past year. The same official estimates that milk production is down 20 percent from a year ago. If China has indeed suffered such a decline in milk output, then the pent-up demand for milk powder could be astounding, according to Sharp.

Chinese milk powder buyers kept imports minimal this summer and fall in the wake of the New Zealand drought. Now that their preferred supplier is back, Sharp says the Chinese are “buying with abandon.”

China purchased a record-breaking 205 million pounds of whole milk powder (WMP) in November, according to the column, up 72 percent from already high import volumes in October. Chinese WMP imports were nearly three times higher than in November 2012, furthermore Sharps says New Zealand accounted for more than 90 percent of the total, sending a record-large 184 million pounds.

China imported 51 million pounds of skim milk powder in November, up 5.3 percent from October and 152 percent greater than November 2012, Sharp said, and “As China laps up milk powder from Oceania, there is more room for U.S. exports elsewhere as American dairy products are competitively priced.” She adds that “political and economic reforms are likely to foster particularly robust growth in Mexico, and the U.S. will continue to enjoy a strong trade partnership with its southern neighbor. Mexico has added more than two million jobs since 2010, and its middle class is growing.”

The International Dairy Foods Association’s (IDFA) Peggy Armstrong said that 2014 will be a busy year. Armstrong reported that IDFA CEO Connie Tipton sees the U.S. dairy industry positioned for incredible growth. “With U.S. dairy product exports now accounting for more than 15 percent of our farm milk production,” Tipton says, “Strong demand for U.S. dairy exports will result in stronger prices throughout the U.S. supply chain.”

Armstrong said the decline in consumption of fluid milk in schools will continue to be a major issue this year, and “will require all of our best efforts to win back milk drinkers among school kids.”

Labeling also will be important this year, she said, as the Food and Drug Administration is expected to release its proposed changes for the Nutrition Facts panel of food labels, which “could change serving size and percent daily values as well as require a new declaration for added sugars.”

Efforts to require GMO labeling of foods could have an impact on the marketing of dairy products, according to Armstrong, “despite the fact that FDA labeling guidance only considers the food itself, and does not address agricultural inputs such as feed used in the production of the food.”

Lastly, she said the industry will likely “continue to deal with negative claims about our products in the digital media. We expect producers will continue to work closely with dairy companies and co-ops to promote our industry’s commitment to providing safe, nutrition foods.”

Hard to believe 2014 is here. What does it hold? If we knew, what would we do about it? Good questions with no real answers. For some 2013 was a year of pain and regret, for others it was a turning point to joy and happiness.

As I reflected on what to write in the final day of 2013, the most profound thing that came to mind was to be there for others; for our family and loved ones, but also for our neighbors and even the strangers we encounter along the way. I think that’s what “walking by faith is about.” I wish you, my faithful readers, peace, joy and God’s presence in 2014 and I thank you for allowing me to serve you and this great industry.